Health Buddy Shop Operational Expenses Analysis

1. What is the impact that Mr. Angelo’s strategy on the total cost?

2. What is the impact of Mr. Rey’s idea in terms of ordering inventories?

3. Having seen the results in Q1 and Q2, what can you conclude to be the best strategy that the company should use? Support your answer with data.

Answer:

Mr. Angelo's strategy of ordering a fixed quantity of 2,000 pcs per order has a significant impact on the total cost. By multiplying the cost per order by the number of orders placed in a year (24,000), the total cost of ordering from the supplier can be calculated. In this case, the total cost would amount to BD 288,000 per year.

Impact of Mr. Rey's idea:

Mr. Rey's idea of implementing a more effective inventory management strategy, such as the economic order quantity (EOQ) model, has a positive impact on ordering inventories. By calculating the optimal order quantity that minimizes both ordering costs and holding costs, Mr. Rey can reduce excess inventory and holding costs, saving money for the company.

Best Strategy:

Based on the results in Q1 and Q2, the best strategy for the company would be to implement the economic order quantity (EOQ) model for ordering the food boxes, disposable spoons and forks, and paper cups. This will optimize the order quantity to minimize costs while maintaining product quality and availability. By comparing the total costs under the EOQ model with Mr. Angelo's current strategy, data-driven evidence can support the proposed improvements.

Implementing the EOQ model will help the company save money by reducing excess inventory and holding costs. It will also ensure product quality by maintaining optimal inventory levels and minimizing the risk of spoilage or obsolescence.